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Summary: This Expert Insight looks at the case of Ziggurat (Claremont Place) v HCC International Insurance Company PLC [2017] and considers the implications of the case for the surety industry generally, particularly in the context of construction insolvency. I read the decision in Ziggurat with some incredulity. Overall I’d agree with the conclusion of Karen Spencer of Gateley that the amendments made to the ABI form seem to have confused rather than clarified matters. I’d also agree that more radical surgery is needed if the employer wishes to secure earlier payment following the contractor’s insolvency. But I did want to offer some thoughts on what the decision tells us about wider issues in the surety bonding market. The Perar issue: debt and breach Most commentaries on the case (including Karen’s) have focussed on the Perar point. This is the point that, under the JCT forms insolvency is not in itself a breach and will not therefore trigger a call on the bond. That is why many employers (and their advisers) seek to amend the ABI form to include insolvency as a ground on which a call may be made. All well and good. But in this case, as Coulson J makes clear, the point had become a non-issue by the time the call was made, since the contract administrator had issued a certificate under JCT clause 8.7.4 stating a balance due from the contractor to the employer. That created a debt, and the contractor’s failure to pay constituted a breach to which (as Peter Gibson LJ noted in Perar) the ABI bond would respond. In short, an open and shut case. So why did the matter come to court at all? Even accepting (as Coulson J noted) that it was open to the surety to challenge the amount of the debt, why did it not accept liability and pursue its case on quantum only? That, to me, is the real question raised by this decision. Sureties: teeth and nails Try as I may, I can’t avoid the conclusion that the surety was desperate to try and avoid liability, at (almost) any cost. We have seen this many times before, the Hackney Empire saga being a recent precedent that springs to mind. But Ziggurat does seem to be a particularly egregious example. accept that it is entirely appropriate for sureties to resist spurious claims, and that they do not wish to set an unwelcome precedent by paying out too easily. But (I’d suggest) that is very far from the position in this case. Putting the claimant to proof is one thing; defending the indefensible is quite another. Put another way, is the surety’s premium income better spent on settling obviously meritorious claims, or in fighting a hopeless cause tooth and nail? As most readers will know, to mount a TCC action does not come cheap, especially if you lose. Is the surety industry really so stressed that it needs to conduct itself in this way? Is this case a one-off, or an indication of a hardening in attitude among sureties generally? Only time will tell, but the signs are not promising. We are seeing sureties push back on terms that have become market standard in recent years; for example, refusing to accept an adjudicator’s decision as the basis for a call, even where the bond includes a reconciliation mechanism should the decision later be overturned in court or arbitration proceedings. Of course, it is up to them. But, assuming they wish to continue providing bonds for construction projects at all, I’d suggest that sureties should think very carefully before biting the hand that feeds them. Employers are increasingly aware of the tactics that sureties commonly use to avoid payment, and many are already unwilling to incur costs on an instrument that in reality offers little value. The “Carillion effect” is only likely to focus minds, on both sides of the debate. Final thoughts/b> In summary, I think the right question is not whether (and, if so, how) to amend the ABI form, but whether a surety bond is really worth having at all. My closing advice? By all means ask for a bond at tender stage, if only as an informal credit check. But, assuming an on demand bond is not available (and, in the UK at least, it rarely will be), clients may be well advised to look elsewhere for the security they need. https://www.lexology.com/library/detail.aspx?g=839a1b1c-d190-4d32-a6f4-3b6af2591dfd

The potential boon to the US construction industry from the Trump administration’s infrastructure rebuilding plans poses benefits and risks for the surety sector, according to AM Best. The future of the US surety market “should remain bright” if plans to rebuild US bridges, highways and other infrastructure come to pass over the next year, the ratings agency said yesterday in a report. “The wealth of opportunities for contractors associated with this undertaking should bring improved margins, and potential profits to… http://www.insuranceinsider.com/trump-spending-plans-offer-surety-benefits-and-risks

OLDWICK, N.J.–(BUSINESS WIRE)–The steady economic recovery of the last few years and the abundance of capital competing for construction business has led to a distinct buyer’s market in the U.S. surety sector. However, according to a new A.M. Best report, it remains to be seen whether the quality of the business written by some of the newer market entrants holds up over time. The Best’s Market Segment Report, titled, “Expected U.S. Infrastructure Boom Poses Benefits, Risks to Surety Sector,” states that the increased revenue for U.S. surety underwriters driven by the improving construction economy, coupled with low surety loss activity, has allowed underwriting results to remain favorable. These positive trends have occurred despite a high supply of available options for surety coverage, which currently outpaces demand. Despite year-to-year variances, U.S. insurers of surety business have generated underwriting income in excess of $1.0 billion in every year since 2009. Taking advantage of the growth in construction activity, surety underwriters have experienced direct premiums written (DPW) growth each year beginning with 2013, and through mid-year 2017, surety DPW is on pace to surpass the $6.0 billion mark for the first time this decade. Due to the profitability surety underwriters have enjoyed, there has been an increase in the number of insurers that have entered into the surety marketplace. As a result, capacity has been more than ample. The competition for the business of small- and medium-size contractors, in particular, has heightened, and account retention has been foremost in the strategy of long-term surety writers looking to protect the quality of their portfolios. According to the report, the heightened competition likely will expose those companies that employed less stringent underwriting standards to grow their top line premium, especially those insurers that had experience with commercial, non-contract bonds, but recently expanded into the contract bond market. The future of the U.S. surety market should remain bright if plans to rebuild the country’s infrastructure come to fruition over the next year. The wealth of opportunities for contractors associated with this undertaking should bring improved margins, and potential profits to construction firms across the nation and the surety insurers that provide bonds for them. A.M. Best believes disciplined underwriting by surety companies that have been proven experts in providing the types of construction bonds that will be more prevalent in an infrastructure rebuild will go a long way toward sustaining the surety industry’s success. To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=269584 https://www.businesswire.com/news/home/20180115005448/en/Best%E2%80%99s-Market-Segment-Report-Expected-U.S.-Infrastructure

U.S. Surety reinsurance risk adjusted rate reductions have continued into the start of 2018 with the market still characterised by abundant capacity, however, rate reductions were lower than those of previous years due to some price increases seen in loss affected programmes, according to Willis Re. Some loss affected treaties renewed with no real sign of genuine rate increases, and after several years of price declines, Willis Re noted that certain reinsurers “being more price disciplined, reduced shares or exited programs.” Despite loss frequency for reinsurers increasing with higher severity in some areas of the market, the U.S. surety industry continued to report strong results through the third quarter of 2017 and structures remain largely unchanged. Buyers continue to favour breadth of coverage along with seeking relaxation of administrative burdens. Reinsurers continued to differentiate among buyers with markets continuing to support good performing programmes with concessions where underwriting expertise and prudent market cycle management are apparent. Overall, it appears the U.S. surety reinsurance market has kicked off 2018 with no significant change in soft market conditions that support a softening of terms across placements, despite market resistance toward rate reductions. https://www.reinsurancene.ws/u-s-surety-reinsurance-soft-market-terms-continue-2018

Starting on February 1, 2018, the Alaska Department of Commerce, Community & Economic Development, Division of Banking & Securities will start accepting applications for the Money Transmitter License on NMLS. The checklist for the license will be available here shortly. Current licensees must submit a license transition request through NMLS by April 1, 2018. In addition, the Department will start using the new Electronic Surety Bonds (ESB) through NMLS for the Money Transmitter License. More information on the ESB is available here. https://www.jdsupra.com/legalnews/alaska-to-add-money-transmitter-license-71891/